Commissioners of Inland Revenue v Joiner
| Jurisdiction | UK Non-devolved |
| Judge | Lord Wilberforce,Viscount Dilhorne,Lord Diplock,Lord Kilbrandon,Lord Edmund-Davies |
| Judgment Date | 26 November 1975 |
| Judgment citation (vLex) | [1975] UKHL J1126-1 |
| Date | 26 November 1975 |
| Court | House of Lords |
[1975] UKHL J1126-1
Lord Wilberforce
Viscount Dilhorne
Lord Diplock
Lord Kilbrandon
Lord Edmund-Davies
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Commissioners of Inland Revenue against Joiner (Junior), That the Committee had heard Counsel, as well on Thursday the 9th, as on Monday the 13th, Tuesday the 14th and Wednesday the 15th, days of October last, upon the Petition and Appeal of Albert George Joiner (Junior) of Charnwood, Ballard Close, Warren Road, Kingston-upon-Thames in the County of Surrey, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 12th of December 1974, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioner might have such other relief in the premises as to Her Majesty the Queen in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 12th day of December 1974, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
This appeal arises under sections 460-468 of the Income and Corporation Taxes Act 1970 (to which Act references relate unless otherwise stated). This Act replaced and consolidated certain provisions against tax avoidance originally contained in the well-known section 28 of the Finance Act 1960.
Mr. A. G. Joiner, Junior, the appellant, controlled a private company called A. G. Joiner & Son Ltd. through the ownership of three quarters of the ordinary shares in its capital: the other quarter had belong to his father. In 1960 the capital consisted of 1,000 £1 shares, but in that year it was increased to 5,000 £1 shares and a bonus issue of 4-1 was made from capitalised profits. Mr. Joiner, Senior, renounced his entitlement in favour of the Trustees of a family settlement (the "father's settlement") and in 1964 transferred to them his original holding. So thereafter the share capital was held as to 3,750 shares by the apellant and 1,250 by the Trustees.
The company was successful and made good profits. In its Profit and Loss Account as at 10th April 1964 it showed a credit of £203,790 representing undistributed profits. In that year action was taken with the admitted purpose of extracting these profits from the company in a manner which would not attract a charge for surtax nor interfere with the company's business. The steps taken, fully described and documented in the Case Stated, were as follows:
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(i) In March 1964 the shareholding in another family company, then called the Auto-Components and Engineering Co. Ltd. ("Auto") was reorganised so that the appellant owned 1,499 out of 1,500 voting shares. The company's accountant held the remaining one voting share as nominee for the appellant. There were 1,500 non-voting shares which were held by trustees of a discretionary family settlement made by the appellant.
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(ii) On 10th April 1964 an agreement was entered into between the appellant, the Trustees of the father's settlement and the company accountant of A. G. Joiner & Son Ltd. This recited that it was intended forthwith to put A. G. Joiner & Son Ltd. into voluntary liquidation with the accountant as liquidator and that the liquidator should sell to Auto the tangible assets and goodwill of A. G. Joiner & Son Ltd. It was then agreed that, for the purpose of the sale agreement and of the distribution of assets, certain valuations of the company's freehold property, plant and machinery, goodwill and investments should be accepted; that the sale price should be satisfied by the issue to A. G. Joiner & Son Ltd. by Auto of an unsecured Loan Note bearing interest at six per cent. per annum, the value of which should be taken at par; that in the liquidation certain assets including freehold property and investments should be allocated to the appellant in partial satisfaction of his rights as a shareholder in the surplus assets, and, by implication, that the Loan Note, or such part as was not needed to satisfy Mr. Joiner's interest, should be allocated to the Trustees of the father's settlement.
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(iii) Immediately after entering into the agreement the appellant and the Trustees of the father's settlement passed a special resolution to wind up A. G. Joiner & Son Ltd. and appointing the accountant as liquidator.
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(iv) The liquidator at once entered into the sale agreement to Auto in consideration of a Loan Note. Auto continued the trade of A. G. Joiner & Son Ltd. and shortly after the sale changed its name to A. G. Joiner & Co. Ltd.
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(v) In pursuance of the Agreement, there were transferred to the appellant the freehold of the company's factory, investments and cash. An unsecured loan note for £63,610 was issued to the Trustees of the father's settlement in satisfaction of their rights as shareholders in the surplus assets of A. G. Joiner & Son Ltd.
The purpose and the result of these transactions were, put simply, to extract from A. G. Joiner & Son Ltd. assets surplus to its trading requirements, and to transfer to Auto the assets necessary to enable that company to continue the trade. This was, in fact, a perfectly normal and well-known type of arrangement, no doubt frequently effected, and before 1960 effective, to produce a saving in tax.
The Commissioners of Inland Revenue formed the opinion that the appellant had thereby gained a tax advantage and on 2 September 1970 they issued a notification under section 460(6) of the Act of 1970 (this was correctly served under that Act and not the earlier legislation by virtue of section 468), followed by a Notice under section 460(3). For this legislation to apply, it is necessary for there to be a transaction or transactions in securities: these were specified, in the notice, as the issue of bonus shares to the appellant in 1960; the scheme of reconstruction of A. G. Joiner & Son Ltd. including the liquidation agreement; the special resolution to wind up A. G. Joiner & Son Ltd.; the sale of assets to Auto and the issue of the Loan Note; the receipt by the appellant in the liquidation of money or moneys worth totalling £184,462. In order to counteract the tax advantage which the appellant was said to have gained, the Commissioners proposed the recomputation of his liability to surtax for 1964/5 on the basis that £137,116 should be taken into account as if it were a net dividend, after deduction of income tax, received at the date of receipt. This sum was arrived at after taking the appellant's three-quarters share of undistributed profits in A. G. Joiner & Son Ltd. and deducting therefrom a sum charged to surtax under Chapter III, Part IX of the Income Tax Act 1952 for the period 1 September 1963-10 April 1964. The arithmetical correctness of this computation is not an issue in this appeal.
The appellant appealed to the Special Commissioners who, after hearing evidence and argument, cancelled the notice, but on a Case Stated to the High Court it was restored by Goulding J. whose decision was affirmed by the Court of Appeal. The appellant has appealed to this House.
In order for the Revenue to succeed, two things must be shown:
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1. that the appellant obtained a tax advantage in any such circumstances as are mentioned in section 461:
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2. that he so obtained it "in consequence of a transaction in securities or of the combined effect of two or more such transactions" (section 460(1)) or "in consequence of the combined effect of the transaction or transactions and of the liquidation of a company" (section 460(2)).
It will be borne in mind that section 467 extends the expression "transactions in securities" so as to include "transactions, of whatever description, relating to securities" Before I enter upon these questions, I must briefly explain the background, as I understand it, against which this and similar questions arising under this legislation must be decided.
Upon the enactment of the original section 28 of the Finance Act 1960 it was possible to contend, and it was contended, that this section (and its associated sections) was directed against a particular type of tax avoidance known generally under such descriptions as dividend stripping, asset stripping and bond washing and that the sections and particular expressions used in them, amongst others "transactions in securities", should be interpreted in the light of this supposed purpose. But this line of argument became unmaintainable after the decisions of this House in Inland Revenue Commissioners v. Parker [1966] A.C. 141 and Greenberg v. Inland Revenue Commissioners [1972] A.C. 109. It is clear that all the members of this House who decided those cases were of opinion that a wide interpretation must be given to the sections and to the expressions used in them. More than this, it appeared from the opinion of Lord Reid in Greenberg that the sections called for a different method of interpretation from that traditionally used in taxing Acts. For whereas it is generally the rule that clear words are required to impose a tax, so that the taxpayer has the benefit of doubts or...
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